'Like most recent IPOs, Heranba’s issue too is likely to be lapped up without hassles. Although, note that the stock markets have been on a weak footing lately and if this trend sustains then the chances of a listing pop will reduce as the robinhood investors will run away'
Agrochemical company, Heranba Industries Ltd’s initial public offering (IPO) opens today and here are some things that investors can take note of. Now, the issue is expected to be lapped up with ease, but will there be a listing pop is the moot question.
Arun Kejriwal, founder of Kejriwal Research and Investment Services Pvt. Ltd said, “Like most recent IPOs, Heranba’s issue too is likely to be lapped up without hassles. Although, note that the stock markets have been on a weak footing lately and if this trend sustains then the chances of a listing pop will reduce as the robinhood investors will run away."
Heranba is a crop protection chemical manufacturer, exporter and marketing firm based out of Vapi, Gujarat. The company manufactures intermediates, technicals and formulations. It is also one of the leading domestic producers of synthetic pyrethroids.
As such, many analysts say valuations aren’t demanding. The price band of the issue is ₹626-627 per share. At the upper end of the price band, the company is valued at 25.7 times financial year 2020 (FY20) earnings.
Analysts expect growth prospects to remain decent, going ahead. “Given huge opportunity in domestic and international space in agri and chemical space along with growing importance of domestic manufacturer globally, the growth trajectory of Heranba Industries is expected to sustain," said analysts from Reliance Securities Ltd in a report on 22 February. The broking firm also added, “Additionally, Heranba has already built sufficient resources in terms of land and other resources to set-up additional manufacturing unit, which bodes well."
Coming to the financials, Heranba’s revenues have increased by 13% compound annual growth rate (Cagr) over FY18-FY20. During the same time frame, the company’s Ebitda has increased at 21% Cagr and net profit by 44% CAGR. Ebitda is earnings before interest, tax, depreciation and amortisation; a key measure of profitability. In FY20, revenue, Ebitda and net profit stood at Rs951 crore, Rs129 crore and ₹98 crore, respectively. In the half year ended September, revenues have increased by 23% year-on-year to Rs618 crore and net profit by 24.5% to Rs66 crore.
The issue comprises ₹60 crore of fresh issue of shares and an offer for sale of 90.15 lakh shares.
To be sure, there are risks. One being competition. “They compete with several domestic companies, as well as large MNCs with broader product ranges, greater brand recognition, stronger sales forces and greater financial resources and experience, including a larger budget for advertising and marketing," said a report from ICICI Direct Research. Lack of long-term contracts is another problem. “Heranba has been dealing with most of its customers for the past several years but the company never entered into any long-term agreements with customers," pointed out ICICI Direct.